Management Science Notes by N.Aruna Kumari, Asst. Prof.

Humanities & Sciences

CHAPTER-3: STRATEGIC MANAGEMENT

Strategic management
Mission; Goals; Objectives; Policy; Strategy; Programmes; Elements of corporate planning
process - environmental scanning; value chain analysis, BCG matrix, generic strategy
alternatives, SWOT analysis, and steps in strategy formulation and implementation; Balance
score card; Capability maturity model (CMM)/ People capabilitymaturity model (PCMM).

Strategic Management - Meaning and Importance:

Strategic Management is all about identification and description of the strategies that
managers can carry so as to achieve better performance and a competitive advantage for
their organization. An organization is said to have competitive advantage if its profitability
is higher than the average profitability for all companies in its industry.

Strategic management can also be defined as a bundle of decisions and acts which a
manager undertakes and which decides the result of the firm’s performance. The manager
must have a thorough knowledge and analysis of the general and competitive
organizational environment so as to take right decisions. They should conduct a SWOT
Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best
possible utilization of strengths, minimize the organizational weaknesses, make use of
arising opportunities from the business environment and shouldn’t ignore the threats.

Strategic Management gives a broader perspective to the employees of an organization and

they can better understand how their job fits into the entire organizational plan and how it
is co-related to other organizational members.

Strategy - Definition and Features:

The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army)
and “ago” (meaning leading/moving).

Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed
strategic planning process”.

A strategy is all about integrating organizational activities and utilizing and allocating the
scarce resources within the organizational environment so as to meet the present
objectives. While planning a strategy it is essential to consider that decisions are not taken
in a vaccum and that any act taken by a firm is likely to be met by a reaction from those
affected, competitors, customers, employees or suppliers.

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Features of Strategy:

• Strategy is Significant because it is not possible to foresee the future. Without a

perfect foresight, the firms must be ready to deal with the uncertain events which
constitute the business environment.
• Strategy deals with long term developments rather than routine operations, i.e. it
deals with probability of innovations or new products, new methods of productions,
or new markets to be developed in future.
• Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an
organization’s strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

Components of a Strategy Statement:

The strategy statement of a firm sets the firm’s long-term strategic direction and broad
policy directions. It gives the firm a clear sense of direction and a blueprint for the firm’s
activities for the upcoming years. The main constituents of a strategic statement are as
follows:

1. Strategic Intent

An organization’s strategic intent is the purpose that it exists and why it will
continue to exist, providing it maintains a competitive advantage. Strategic intent
gives a picture about what an organization must get into immediately in order to
achieve the company’s vision. It motivates the people. It clarifies the vision of the
vision of the company.

Strategic intent helps management to emphasize and concentrate on the priorities.

Strategic intent is, nothing but, the influencing of an organization’s resource
potential and core competencies to achieve what at first may seem to be
unachievable goals in the competitive environment. A well expressed strategic
intent should guide/steer the development of strategic intent or the setting of goals
and objectives that require that all of organization’s competencies be controlled to
maximum value.

Strategic intent includes directing organization’s attention on the need of winning;

inspiring people by telling them that the targets are valuable; encouraging
individual and team participation as well as contribution; and utilizing intent to
direct allocation of resources.

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Strategic intent differs from strategic fit in a way that while strategic fit deals with
harmonizing available resources and potentials to the external environment,
strategic intent emphasizes on building new resources and potentials so as to create
and exploit future opportunities.

2. Mission Statement

Mission statement is the statement of the role by which an organization intends to

serve it’s stakeholders. It describes why an organization is operating and thus
provides a framework within which strategies are formulated. It describes what the
organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and
what makes an organization unique (i.e., reason for existence).

A mission statement differentiates an organization from others by explaining its

broad scope of activities, its products, and technologies it uses to achieve its goals
and objectives. It talks about an organization’s present (i.e., “about where we are”).
For instance, Microsoft’s mission is to help people and businesses throughout the
world to realize their full potential. Wal-Mart’s mission is “To give ordinary folk
the chance to buy the same thing as rich people.” Mission statements always exist at
top level of an organization, but may also be made for various organizational levels.
Chief executive plays a significant role in formulation of mission statement. Once the
mission statement is formulated, it serves the organization in long run, but it may
become ambiguous with organizational growth and innovations.

In today’s dynamic and competitive environment, mission may need to be redefined.

However, care must be taken that the redefined mission statement should have
original fundamentals/components. Mission statement has three main components-
a statement of mission or vision of the company, a statement of the core values that
shape the acts and behaviour of the employees, and a statement of the goals and
objectives.

Features of a Mission

a.Mission must be feasible and attainable. It should be possible to achieve it.

b.Mission should be clear enough so that any action can be taken.
c.It should be inspiring for the management, staff and society at large.
d.It should be precise enough, i.e., it should be neither too broad nor too
narrow.
e. It should be unique and distinctive to leave an impact in everyone’s mind.
f. It should be analytical,i.e., it should analyze the key components of the
strategy.
g. It should be credible, i.e., all stakeholders should be able to believe it.
3. Vision

A vision statement identifies where the organization wants or intends to be in future

or where it should be to best meet the needs of the stakeholders. It describes
dreams and aspirations for future. For instance, Microsoft’s vision is “to empower

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people through great software, any time, any place, or any device.” Wal-Mart’s
vision is to become worldwide leader in retailing.

A vision is the potential to view things ahead of themselves. It answers the question
“where we want to be”. It gives us a reminder about what we attempt to develop. A
vision statement is for the organization and it’s members, unlike the mission
statement which is for the customers/clients. It contributes in effective decision
making as well as effective business planning. It incorporates a shared
understanding about the nature and aim of the organization and utilizes this
understanding to direct and guide the organization towards a better purpose. It
describes that on achieving the mission, how the organizational future would
appear to be.

An effective vision statement must have following features-

a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being
owned and shared by everyone involved in the organization.

4. Goals and Objectives

A goal is a desired future state or objective that an organization tries to achieve.

Goals specify in particular what must be done if an organization is to attain mission
or vision. Goals make mission more prominent and concrete. They co-ordinate and
integrate various functional and departmental areas in an organization. Well made
goals have following features-

a. These are precise and measurable.

b. These look after critical and significant issues.
c. These are realistic and challenging.
d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial components.

Objectives are defined as goals that organization wants to achieve over a period of
time. These are the foundation of planning. Policies are developed in an organization
so as to achieve these objectives. Formulation of objectives is the task of top level
management. Effective objectives have following features-

f. These are not single for an organization, but multiple.

g. Objectives should be both short-term as well as long-term.

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h. Objectives must respond and react to changes in environment, i.e., they must
be flexible.
i. These must be feasible, realistic and operational.

Importance of Vision and Mission Statements:

One of the first things that any observer of management thought and practice asks is
whether a particular organization has a vision and mission statement. In addition, one of
the first things that one learns in a business school is the importance of vision and mission
statements.

This article is intended to elucidate on the reasons why vision and mission
statements are important and the benefits that such statements provide to the
organizations. It has been found in studies that organizations that have lucid, coherent,
and meaningful vision and mission statements return more than double the numbers in
shareholder benefits when compared to the organizations that do not have vision and
mission statements. Indeed, the importance of vision and mission statements is such that it
is the first thing that is discussed in management textbooks on strategy.

Some of the benefits of having a vision and mission statement are discussed below:

▪ Above everything else, vision and mission statements provide unanimity of purpose
to organizations and imbue the employees with a sense of belonging and identity.
Indeed, vision and mission statements are embodiments of organizational identity
and carry the organizations creed and motto. For this purpose, they are also called
as statements of creed.
▪ Vision and mission statements spell out the context in which the organization
operates and provides the employees with a tone that is to be followed in the
organizational climate. Since they define the reason for existence of the
organization, they are indicators of the direction in which the organization must
move to actualize the goals in the vision and mission statements.
▪ The vision and mission statements serve as focal points for individuals to identify
themselves with the organizational processes and to give them a sense of direction
while at the same time deterring those who do not wish to follow them from
participating in the organization’s activities.
▪ The vision and mission statements help to translate the objectives of the
organization into work structures and to assign tasks to the elements in the
organization that are responsible for actualizing them in practice.
▪ To specify the core structure on which the organizational edifice stands and to help
in the translation of objectives into actionable cost, performance, and time related
measures.
▪ Finally, vision and mission statements provide a philosophy of existence to the
employees, which is very crucial because as humans, we need meaning from the
work to do and the vision and mission statements provide the necessary meaning
for working in a particular organization.

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As can be seen from the above, articulate, coherent, and meaningful vision and mission
statements go a long way in setting the base performance and actionable parameters and
embody the spirit of the organization. In other words, vision and mission statements are as
important as the various identities that individuals have in their everyday lives.

It is for this reason that organizations spend a lot of time in defining their vision and
mission statements and ensure that they come up with the statements that provide
meaning instead of being mere sentences that are devoid of any meaning.

Strategic Management Process - Meaning, Steps and

Components:
The strategic management process means defining the organization’s strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and industries in
which the organization is involved; appraises it’s competitors; and fixes goals to meet all
the present and future competitor’s and then reassesses each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing
the internal and external factors influencing an organization. After executing the
environmental analysis process, management should evaluate it on a continuous
basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course
of action for accomplishing organizational objectives and hence achieving
organizational purpose. After conducting environment scanning, managers
formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy
work as intended or putting the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s structure, distributing
resources, developing decision making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management
process. The key strategy evaluation activities are: appraising internal and external
factors that are the root of present strategies, measuring performance, and taking
remedial / corrective actions. Evaluation makes sure that the organizational
strategy as well as it’s implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic
management plan will revert to these steps as per the situation’s requirement, so as to
make essential changes.

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Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each

component interacts with the other components and that this interaction often happens in
chorus.

Environmental Scanning - Internal & External Analysis of

Environment
Organizational environment consists of both external and internal factors. Environment
must be scanned so as to determine development and forecasts of factors that will
influence organizational success. Environmental scanning refers to possession and
utilization of information about occasions, patterns, trends, and relationships within
an organization’s internal and external environment. It helps the managers to decide
the future path of the organization. Scanning must identify the threats and opportunities
existing in the environment. While strategy formulation, an organization must take
advantage of the opportunities and minimize the threats. A threat for one organization may
be an opportunity for another.

Internal analysis of the environment is the first step of environment scanning.

Organizations should observe the internal organizational environment. This includes
employee interaction with other employees, employee interaction with management,
manager interaction with other managers, and management interaction with shareholders,
access to natural resources, brand awareness, organizational structure, main staff,
operational potential, etc. Also, discussions, interviews, and surveys can be used to assess
the internal environment. Analysis of internal environment helps in identifying strengths
and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the
effectiveness of long-term plans. As environment is dynamic, it becomes essential to
identify competitors’ moves and actions. Organizations have also to update the core
competencies and internal environment as per external environment. Environmental
factors are infinite, hence, organization should be agile and vigile to accept and adjust to
the environmental changes. For instance - Monitoring might indicate that an original
forecast of the prices of the raw materials that are involved in the product are no more
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credible, which could imply the requirement for more focused scanning, forecasting and
analysis to create a more trustworthy prediction about the input costs. In a similar manner,
there can be changes in factors such as competitor’s activities, technology, market tastes
and preferences.

While in external analysis, three correlated environment should be studied and analysed:

• immediate / industry environment

• national environment
• broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the competitive structure of

the organization’s industry, including the competitive position of a particular organization
and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the
industry is essential. It also implies evaluating the effect of globalization on competition
within the industry. Analyzing the national environment needs an appraisal of whether
the national framework helps in achieving competitive advantage in the globalized
environment. Analysis of macro-environment includes exploring macro-economic, social,
government, legal, technological and international factors that may influence the
environment. The analysis of organization’s external environment reveals opportunities
and threats for an organization.

Strategic managers must not only recognize the present state of the environment and their
industry but also be able to predict its future positions.

Steps in Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate course of
action for the realization of organizational goals and objectives and thereby achieving the
organizational vision. The process of strategy formulation basically involves six main
steps. Though these steps do not follow a rigid chronological order, however they are very
rational and can be easily followed in this order.

1. Setting Organizations’ objectives - The key component of any strategy statement

is to set the long-term objectives of the organization. It is known that strategy is
generally a medium for realization of organizational objectives. Objectives stress the
state of being there whereas Strategy stresses upon the process of reaching there.
Strategy includes both the fixation of objectives as well the medium to be used to
realize those objectives. Thus, strategy is a wider term which believes in the manner
of deployment of resources so as to achieve the objectives.

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While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analyzed before the selection of
objectives. Once the objectives and the factors influencing strategic decisions have
been determined, it is easy to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the

general economic and industrial environment in which the organization operates.
This includes a review of the organizations competitive position. It is essential to
conduct a qualitative and quantitative review of an organizations existing product
line. The purpose of such a review is to make sure that the factors important for
competitive success in the market can be discovered so that the management can
identify their own strengths and weaknesses as well as their competitors’ strengths
and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats
to its market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind
this is to compare with long term customers, so as to evaluate the contribution that
might be made by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions made
by each department or division or product category within the organization is
identified and accordingly strategic planning is done for each sub-unit. This requires
a careful analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing
the gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future
conditions must be done by the organization. This critical evaluation identifies the
degree of gap that persists between the actual reality and the long-term aspirations
of the organization. An attempt is made by the organization to estimate its probable
future condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best
course of action is actually chosen after considering organizational goals,
organizational strengths, potential and limitations as well as the external
opportunities

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Strategy Implementation - Meaning and Steps in Implementing

a Strategy
Strategy implementation is the translation of chosen strategy into organizational
action so as to achieve strategic goals and objectives. Strategy implementation is also
defined as the manner in which an organization should develop, utilize, and amalgamate
organizational structure, control systems, and culture to follow strategies that lead to
competitive advantage and a better performance. Organizational structure allocates special
value developing tasks and roles to the employees and states how these tasks and roles can
be correlated so as maximize efficiency, quality, and customer satisfaction-the pillars of
competitive advantage. But, organizational structure is not sufficient in itself to motivate
the employees.

An organizational control system is also required. This control system equips managers
with motivational incentives for employees as well as feedback on employees and
organizational performance. Organizational culture refers to the specialized collection of
values, attitudes, norms and beliefs shared by organizational members and groups.

Following are the main steps in implementing a strategy:

• Developing an organization having potential of carrying out strategy successfully

• Disbursement of abundant resources to strategy-essential activities
• Creating strategy-encouraging policies
• Employing best policies and programs for constant improvement
• Linking reward structure to accomplishment of results
• Making use of strategic leadership

Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability
between strategy and each organizational dimension such as organizational structure,
reward structure, resource-allocation process, etc.

Strategy implementation poses a threat to many managers and employees in an

organization. New power relationships are predicted and achieved. New groups (formal as
well as informal) are formed whose values, attitudes, beliefs and concerns may not be
known. With the change in power and status roles, the managers and employees may
employ confrontation behaviour

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Strategy Formulation vs Strategy Implementation

Following are the main differences between Strategy Formulation and Strategy
Implementation-

Strategy Formulation Strategy Implementation

Strategy Formulation includes planning and Strategy Implementation involves all those
decision-making involved in developing means related to executing the strategic
organization’s strategic goals and plans. plans.
In short, Strategy Formulation is placing the In short, Strategy Implementation
Forces before the action. is managing forces during the action.
Strategy Formulation is an Entrepreneurial Strategic Implementation is mainly
Activity based on strategic decision-making. an Administrative Taskbased on strategic
and operational decisions.
Strategy Formulation emphasizes Strategy Implementation emphasizes
on effectiveness. on efficiency.
Strategy Formulation is a rational process. Strategy Implementation is basically
an operational process.
Strategy Formulation requires co-ordination Strategy Implementation requires co-
among few individuals. ordination among many individuals.
Strategy Formulation requires a great deal Strategy Implementation requires
of initiative and logical skills. specific motivational and leadership
traits.
Strategic Formulation precedes Strategy Strategy Implementation follows Strategy
Implementation. Formulation.

Strategy Evaluation Process and its Significance

Strategy Evaluation is as significant as strategy formulation because it throws light on the
efficiency and effectiveness of the comprehensive plans in achieving the desired results.
The managers can also assess the appropriateness of the current strategy in todays
dynamic world with socio-economic, political and technological innovations. Strategic
Evaluation is the final phase of strategic management.

The significance of strategy evaluation lies in its capacity to co-ordinate the task
performed by managers, groups, departments etc, through control of performance.
Strategic Evaluation is significant because of various factors such as - developing inputs for
new strategic planning, the urge for feedback, appraisal and reward, development of the
strategic management process, judging the validity of strategic choice etc.

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The process of Strategy Evaluation consists of following steps-

1. Fixing benchmark of performance - While fixing the benchmark, strategists

encounter questions such as - what benchmarks to set, how to set them and how to
express them. In order to determine the benchmark performance to be set, it is
essential to discover the special requirements for performing the main task. The
performance indicator that best identify and express the special requirements might
then be determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of performance.
Quantitative criteria includes determination of net profit, ROI, earning per share,
cost of production, rate of employee turnover etc. Among the Qualitative factors are
subjective evaluation of factors such as - skills and competencies, risk taking
potential, flexibility etc.
2. Measurement of performance - The standard performance is a bench mark with
which the actual performance is to be compared. The reporting and communication
system help in measuring the performance. If appropriate means are available for
measuring the performance and if the standards are set in the right manner,
strategy evaluation becomes easier. But various factors such as managers
contribution are difficult to measure. Similarly divisional performance is sometimes
difficult to measure as compared to individual performance. Thus, variable
objectives must be created against which measurement of performance can be done.
The measurement must be done at right time else evaluation will not meet its
purpose. For measuring the performance, financial statements like - balance sheet,
profit and loss account must be prepared on an annual basis.
3. Analyzing Variance - While measuring the actual performance and comparing it
with standard performance there may be variances which must be analyzed. The
strategists must mention the degree of tolerance limits between which the variance
between actual and standard performance may be accepted. The positive deviation
indicates a better performance but it is quite unusual exceeding the target always.
The negative deviation is an issue of concern because it indicates a shortfall in
performance. Thus in this case the strategists must discover the causes of deviation
and must take corrective action to overcome it.
4. Taking Corrective Action - Once the deviation in performance is identified, it is
essential to plan for a corrective action. If the performance is consistently less than
the desired performance, the strategists must carry a detailed analysis of the factors
responsible for such performance. If the strategists discover that the organizational
potential does not match with the performance requirements, then the standards
must be lowered. Another rare and drastic corrective action is reformulating the
strategy which requires going back to the process of strategic management,

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reframing of plans according to new resource allocation trend and consequent

means going to the beginning point of strategic management process.

Strategic Decisions - Definition and Characteristics

Strategic decisions are the decisions that are concerned with whole environment in which
the firm operates, the entire resources and the people who form the company and the
interface between the two.

Characteristics/Features of Strategic Decisions

a. Strategic decisions have major resource propositions for an organization. These

decisions may be concerned with possessing new resources, organizing others or
reallocating others.
b. Strategic decisions deal with harmonizing organizational resource capabilities with
the threats and opportunities.
c. Strategic decisions deal with the range of organizational activities. It is all about
what they want the organization to be like and to be about.
d. Strategic decisions involve a change of major kind since an organization operates in
ever-changing environment.
e. Strategic decisions are complex in nature.
f. Strategic decisions are at the top most level, are uncertain as they deal with the
future, and involve a lot of risk.
g. Strategic decisions are different from administrative and operational decisions.
Administrative decisions are routine decisions which help or rather facilitate
strategic decisions or operational decisions. Operational decisions are technical
decisions which help execution of strategic decisions. To reduce cost is a strategic
decision which is achieved through operational decision of reducing the number of
employees and how we carry out these reductions will be administrative decision.

The differences between Strategic, Administrative and Operational decisions can be

summarized as follows-

Strategic Decisions Administrative Decisions Operational Decisions

Strategic decisions are long- Administrative decisions Operational decisions are

term decisions. are taken daily. not frequently taken.

These are considered where These are short-term based These are medium-period
The future planning is Decisions. based decisions.
concerned.

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Strategic decisions are taken These are taken according These are taken in
in Accordance with to strategic and operational accordance with strategic
organizational mission and Decisions. and administrative decision.
vision.

These are related to overall These are related to These are related to
Counter planning of all working of employees in an production.
Organization. Organization.

These deal with These are in welfare of These are related to

organizational Growth. employees working in an production and factory
organization. growth.

Benefits of Strategic Management

There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer
markets, and newer forays into business lines are only possible if firms indulge in strategic
planning. Next, strategic management allows firms to take an objective view of the
activities being done by it and do a cost benefit analysis as to whether the firm is profitable.

Just to differentiate, by this, we do not mean the financial benefits alone (which would be
discussed below) but also the assessment of profitability that has to do with evaluating
whether the business is strategically aligned to its goals and priorities.

The key point to be noted here is that strategic management allows a firm to orient itself to
its market and consumers and ensure that it is actualizing the right strategy.

Financial Benefits

It has been shown in many studies that firms that engage in strategic management are
more profitable and successful than those that do not have the benefit of strategic planning
and strategic management.

When firms engage in forward looking planning and careful evaluation of their priorities,
they have control over the future, which is necessary in the fast changing business
landscape of the 21st century.

It has been estimated that more than 100,000 businesses fail in the US every year and most
of these failures are to do with a lack of strategic focus and strategic direction. Further, high
performing firms tend to make more informed decisions because they have considered
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both the short term and long-term consequences and hence, have oriented their strategies
accordingly. In contrast, firms that do not engage themselves in meaningful strategic
planning are often bogged down by internal problems and lack of focus that leads to failure.

Non-Financial Benefits

The section above discussed some of the tangible benefits of strategic management. Apart
from these benefits, firms that engage in strategic management are more aware of the
external threats, an improved understanding of competitor strengths and weaknesses and
increased employee productivity. They also have lesser resistance to change and a clear
understanding of the link between performance and rewards.

The key aspect of strategic management is that the problem solving and problem
preventing capabilities of the firms are enhanced through strategic management. Strategic
management is essential as it helps firms to rationalize change and actualize change and
communicate the need to change better to its employees. Finally, strategic management
helps in bringing order and discipline to the activities of the firm in its both internal
processes and external activities.

Closing Thoughts

In recent years, virtually all firms have realized the importance of strategic management.
However, the key difference between those who succeed and those who fail is that the way
in which strategic management is done and strategic planning is carried out makes the
difference between success and failure. Of course, there are still firms that do not engage in
strategic planning or where the planners do not receive the support from management.
These firms ought to realize the benefits of strategic management and ensure their longer-
term viability and success in the marketplace.

Issues of Strategic Management:

Value Chain Analysis
Value chain analysis (VCA) is a process where a firm identifies its primary and support
activities that add value to its final product and then analyze these activities to reduce costs
or increase differentiation.
Value chain represents the internal activities a firm engages in when transforming inputs
into outputs.
Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to
recognize, which activities are the most valuable (i.e. are the source of cost or
differentiation advantage) to the firm and which ones could be improved to provide
competitive advantage.

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Michael Porter’s Value Chain Diagram

Although, primary activities add value directly to the production process, they are not
necessarily more important than support activities. Nowadays, competitive advantage
mainly derives from technological improvements or innovations in business models or
processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general
management’ are usually the most important source of differentiation advantage. On the
other hand, primary activities are usually the source of cost advantage, where costs can be
easily identified for each activity and properly managed.

Primary activities:

• Inbound Logistics: arranging the inbound movement of materials, parts, and/or finished
inventory from suppliers to manufacturing or assembly plants, warehouses, or retail
stores

• Operations: concerned with managing the process that converts inputs (in the forms of
raw materials, labor, and energy) into outputs (in the form of goods and/or services).

• Outbound Logistics: is the process related to the storage and movement of the final
product and the related information flows from the end of the production line to the end
user

• Marketing and Sales: selling a product or service and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers,
clients, partners, and society at large.

• Service: includes all the activities required to keep the product/service working
effectively for the buyer after it is sold and delivered.

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Support activities

1. Infrastructure: consists of activities such as accounting, legal, finance, control, public

relations, quality assurance and general (strategic) management

2. Technological Development: pertains to the equipment, hardware, software, procedures

and technical knowledge brought to bear in the firm's transformation of inputs into
outputs.

3. Human Resources Management: consists of all activities involved in recruiting, hiring,

training, developing, compensating and (if necessary) dismissing or laying off personnel.

4. Procurement: the acquisition of goods, services or works from an outside external

source

Strength, Weaknesses, Opportunities & Threats(SWOT)Analysis

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By
definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over
which you have some measure of control. Also, by definition, Opportunities (O) and Threats
(T) are considered to be external factors over which you have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic
position of the business and its environment. Its key purpose is to identify the strategies
that will create a firm specific business model that will best align an organization’s
resources and capabilities to the requirements of the environment in which the firm
operates.

In other words, it is the foundation for evaluating the internal potential and limitations and
the probable/likely opportunities and threats from the external environment. It views all
positive and negative factors inside and outside the firm that affect the success. A
consistent study of the environment in which the firm operates helps in
forecasting/predicting the changing trends and also helps in including them in the
decision-making process of the organization.

An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is

given below-

1. Strengths - Strengths are the qualities that enable us to accomplish the

organization’s mission. These are the basis on which continued success can be made
and continued/sustained.
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Strengths can be either tangible or intangible. These are what you are well-versed in
or what you have expertise in, the traits and qualities your employees possess
(individually and as a team) and the distinct features that give your organization its
consistency.

Strengths are the beneficial aspects of the organization or the capabilities of an

organization, which includes human competencies, process capabilities, financial
resources, products and services, customer goodwill and brand loyalty. Examples of
organizational strengths are huge financial resources, broad product line, no debt,
committed employees, etc.

2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our
mission and achieving our full potential. These weaknesses deteriorate influences
on the organizational success and growth. Weaknesses are the factors which do not
meet the standards we feel they should meet.

Weaknesses in an organization may be depreciating machinery, insufficient

research and development facilities, narrow product range, poor decision-making,
etc. Weaknesses are controllable. They must be minimized and eliminated. For
instance - to overcome obsolete machinery, new machinery can be purchased. Other
examples of organizational weaknesses are huge debts, high employee turnover,
complex decision making process, narrow product range, large wastage of raw
materials, etc.

3. Opportunities - Opportunities are presented by the environment within which our

organization operates. These arise when an organization can take benefit of
conditions in its environment to plan and execute strategies that enable it to become
more profitable. Organizations can gain competitive advantage by making use of
opportunities.

Organization should be careful and recognize the opportunities and grasp them
whenever they arise. Selecting the targets that will best serve the clients while
getting desired results is a difficult task. Opportunities may arise from market,
competition, industry/government and technology. Increasing demand for
telecommunications accompanied by deregulation is a great opportunity for new
firms to enter telecom sector and compete with existing firms for revenue.

4. Threats - Threats arise when conditions in external environment jeopardize the

reliability and profitability of the organization’s business. They compound the
vulnerability when they relate to the weaknesses. Threats are uncontrollable. When
a threat comes, the stability and survival can be at stake. Examples of threats are -

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unrest among employees; ever changing technology; increasing competition leading

to excess capacity, price wars and reducing industry profits; etc.

Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but
it involves a great subjective element. It is best when used as a guide, and not as a
prescription. Successful businesses build on their strengths, correct their weakness and
protect against internal weaknesses and external threats. They also keep a watch on their
overall business environment and recognize and exploit new opportunities faster than its
competitors.

SWOT Analysis helps in strategic planning in following manner-

a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current data,
future plans can be chalked out.

SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view
circumstances as very simple because of which the organizations might overlook certain
key strategic contact which may occur. Moreover, categorizing aspects as strengths,
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weaknesses, opportunities and threats might be very subjective as there is great degree of
uncertainty in market. SWOT Analysis does stress upon the significance of these four
aspects, but it does not tell how an organization can identify these aspects for itself.

There are certain limitations of SWOT Analysis which are not in control of management.
These include-

a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to
import restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

SWOT Analysis of Google:

Introduction

Google is probably the world’s best-known company for pioneering the search engine
revolution and providing a means for the internet users of the world to search and find
information at the click of a mouse. Further, Google is also known for its work in
organizing information in a concise and precise manner that has been a game changer for
the internet economy and by extension, the global economy because corporations,
individuals, and consumers can search and access information about anything anywhere
and anytime. Moreover, Google also goes with the motto of “Do not be Evil” which means
that its business practices are geared towards enhancing information and actualizing best
practices that would help people find and search information. Though its business
practices in China and elsewhere where the company was accused of being complicit with
the authoritarian regimes in censoring information were questionable, on balance, the
company has done more good than harm in bringing together information and organizing
it.

Strengths

▪ Market Leader in Search Engines

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Perhaps the biggest strength of Google is that it is the undisputed leader in search
engines, which means that it has a domineering and lion’s share of the internet
searches worldwide. Google has more than 65% of the market share for internet
searches and the competitors do not even come close to anywhere that Google does.

▪ Ability to Generate User Traffic

Google is a household brand in the world, its ability to drive internet user traffic is
legendary, and this has helped it become one of the most powerful brands in the
world. Indeed, Google averages more than 1.2 Billion hits a month in terms of the
unique searches that users perform on the site. This gives it an unrivaled and
unparalleled edge over its competitors in the market.

▪ Revenue from Advertising and Display

Its revenue model wherein it garners humungous profits through partnerships with
third party sites has held the company in good stead as far as its ability to mop up
resources and increase both its top-line as well as bottom-line is concerned. This is
another key strength of the company that has helped it scale greater heights.

▪ Introduction of Android and Mobile Technologies

The last of the strengths discussed here relates to its adoption of Android and
Mobile technologies, this has resulted in it becoming a direct competitor of Apple as
far as these devices, and operating systems are concerned.

Weaknesses

▪ Excessive Reliance on Secrecy

Google does not reveal its algorithm for searches or even its basic formula as far as
internet searches are concerned leading to many experts slamming the company for
being opaque and hiding behind the veneer of secrecy. However, in recent years,
Google has taken steps to redress this by providing a bare bones version of its
unique search engine algorithm.

▪ Falling Ad Rates

In recent years and especially in 2013, the company has been faced with declining
revenues from ads and as a result, the profitability of the company has taken a hit.
This is partly due to the ongoing global economic slowdown and partly because of
competitors snapping at its heels in a more aggressive manner. Indeed, Apple has
already taken steps to garner search engine revenues in its devices and hence,
Google must be cognizant of the challenges that lie ahead.

▪ Overdependence on Advertising

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Google’s business model relies heavily on advertising and the numbers reveal that it
gets more than 85% of its revenues from ads alone. This means that any potential
dip in revenues would cost the company dearly (literally as well as metaphorically).
The point here is that Google has to devise a more robust business model that
embraces e-commerce and mobile commerce along with its current business model
that is based on ad revenues alone.

▪ Lack of Compatibility with next generation devices

Another weakness for Google is that it is not compatible with many next generation
computing platforms including mobile and tablet computers and this remains an
area of concern for the company.

Opportunities

▪ Android Operating System

Perhaps the biggest opportunity for Google lies in its pioneering effort in providing
the Android OS (Operating System) which has resulted in its becoming a direct
competitor to Apple and Samsung.

▪ Diversification into non-Ad Business Models

As discussed earlier, the company has to diversify into non-ad revenues if it has to
remain profitable and current indications are that it is adapting itself to this as can
be seen from the push towards commercial transactions using its numerous sites
like Google Books, Google Maps etc.

▪ Google Glasses and Google Play

The introduction of Google Glasses and Google Play promises to be a game changer
for Google and this is a significant opportunity that the company can exploit. Indeed,
this very aspect can make the company take the next evolutionary leap into the
emerging world of nano-computing.

▪ Cloud Computing

Cloud Computing remains a key opportunity for Google as it is already experienced

in providing storage and cloud solutions. Indeed, if not anything, it can move into
the enterprise market using the cloud-computing paradigm.

Threats

▪ Competition from Facebook

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The advent of Social Media has seriously threatened Google’s dominance in the
internet world and the company has to pull an ace to deal with the increasing
features available on Facebook and Twitter.

▪ Mobile Computing

Another threat to Google is from the emerging area of mobile computing that
threatens to pass the company by as newer companies seize the opportunity to
ramp up their mobile computing presence.

BCG Matrix
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed
by BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic
representation for an organization to examine different businesses in it’s portfolio on the
basis of their related market share and industry growth rates. It is a two dimensional
analysis on management of SBU’s (Strategic Business Units). In other words, it is a
comparative analysis of business potential and the evaluation of environment.

According to this matrix, business could be classified as high or low according to their
industry growth rate and relative market share.

Relative Market Share = SBU Sales this year leading competitors sales this year.

Market Growth Rate = Industry sales this year - Industry Sales last year.

The analysis requires that both measures be calculated for each SBU. The dimension of
business strength, relative market share, will measure comparative advantage indicated by
market dominance. The key theory underlying this is existence of an experience curve and
that market share is achieved due to overall cost leadership.

BCG matrix has four cells, with the horizontal axis representing relative market share and
the vertical axis denoting market growth rate. The mid-point of relative market share is set
at 1.0. if all the SBU’s are in same industry, the average growth rate of the industry is used.
While, if all the SBU’s are located in different industries, then the mid-point is set at the
growth rate for the economy.

Resources are allocated to the business units according to their situation on the grid. The
four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each
of these cells represents a particular type of business.

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10 x 1x 0.1 x

Figure: BCG Matrix

1. Stars- Stars represent business units having large market share in a fast growing
industry. They may generate cash but because of fast growing market, stars require
huge investments to maintain their lead. Net cash flow is usually modest. SBU’s
located in this cell are attractive as they are located in a robust industry and these
business units are highly competitive in the industry. If successful, a star will
become a cash cow when the industry matures.
2. Cash Cows- Cash Cows represents business units having a large market share in a
mature, slow growing industry. Cash cows require little investment and generate
cash that can be utilized for investment in other business units. These SBU’s are the
corporation’s key source of cash, and are specifically the core business. They are the
base of an organization. These businesses usually follow stability strategies. When
cash cows loose their appeal and move towards deterioration, then a retrenchment
policy may be pursued.
3. Question Marks- Question marks represent business units having low relative
market share and located in a high growth industry. They require huge amount of
cash to maintain or gain market share. They require attention to determine if the
venture can be viable. Question marks are generally new goods and services which
have a good commercial prospective. There is no specific strategy which can be
adopted. If the firm thinks it has dominant market share, then it can adopt
expansion strategy, else retrenchment strategy can be adopted. Most businesses
start as question marks as the company tries to enter a high growth market in which
there is already a market-share. If ignored, then question marks may become dogs,
while if huge investment is made, then they have potential of becoming stars.

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4. Dogs- Dogs represent businesses having weak market shares in low-growth

markets. They neither generate cash nor require huge amount of cash. Due to low
market share, these business units face cost disadvantages. Generally retrenchment
strategies are adopted because these firms can gain market share only at the
expense of competitor’s/rival firms. These business firms have weak market share
because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some
other strategic aim, it should be liquidated if there is fewer prospects for it to gain
market share. Number of dogs should be avoided and minimized in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business
units and makes it possible to compare many business units at a glance. But BCG Matrix is
not free from limitations, such as-

1. BCG matrix classifies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs also
involved with high market share.
4. Growth rate and relative market share are not the only indicators of profitability.
This model ignores and overlooks other indicators of profitability.
5. At times, dogs may help other businesses in gaining competitive advantage. They
can earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

Balanced Score Card

Balance score card is a framework that helps organisations translate strategy into
operational goals and objectives that drive both behaviour and performance.
ORIGIN:
 Concept developed by Robert Kaplan & David Norton
 Essentially A Strategic Management system
 Also a Corporate Performance Management System

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Purpose:
Improves management effectiveness by having a shared and actionable view of the
strategy. Optimizes and ensures strategic outcomes for a given set of resources.
Enables employees to work in a coordinated, collaborative fashion towards organizational
goals. Speeds time to value through faster more informed decision-making on time and
resource allocation. Accelerates the approach, and its accuracy to the strategic destination.
Imagine entering the cockpit of a jet airplane and observing that that there is only a single
instrument.ability to exploit intangible assets has become far more decisive than their
ability to invest in and manage physical assets
Most companies operational and management control systems are built around
financial measures and targets.The scorecard introduces four new management processes
that contribute to linking long term strategic objectives with short term actions

The four perspectives:

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Financial or Profit & Growth: To satisfy our stakeholders, what financial objectives must,
we accomplish?
Clients: What is the customer Value Proposition that will create the financial rewards we
are seeking
Operational Excellence: In which internal business processes must we excel in order to
deliver our value proposition as described in the client perspective and finally reach the
goals in the financial perspective
Human Capital: What do wee need to change in our infrastructure or intellectual capital to
achieve our operational excellence goals.

GOALS:
• Provide a generic framework to translate strategy into operational terms.
• Create a systems approach to form an integrated Strategic management Process.
• Provide a clear line of sight to the vision and strategy of the company.
• Provide a tool for communicating the strategy, and processes and systems required
for implementing the strategy

Some of the Indicators of Good Balanced Scorecard:

1. Executive Involvement: Strategic decision makers must validate and own the strategy
and related measures
2. Cause-and-Effect Relationships: Every objective selected should be part of a chain of
cause and effect linkages that represent the strategy
3. Balance between outcome and leading measures: There should be a balance of
outcome measures and leading measures to facilitate anticipatory management
4. Financial Linkage: Every objective can ultimately be related to financial results
5. Linkage of Initiatives and Measures: Each initiative should be based on a gap
between baseline and target.
A good Balanced Scorecard will “tell the story” of your strategy in actionable terms.

The Balanced Scorecard Is Based on an Understanding of the Basic Building Blocks of the
Strategy:
1. The economic model of key levers driving financial performance
2. The value proposition of target customers
3. The value chain of core business processes
4. The critical enablers of performance improvement, change and learning.
The Cause & Effect Relationship in the BSC:
 There is an important sequence between the four perspectives
– Financial/Profit and Growth – (Make a profit)
– Clients(By satisfying your customers needs)
– Operational Excellence(through being able to deliver value)
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– Human Capital (by having the necessary knowledge and tools available)
Advantages:
• It improves internal and external communications
• It is used to monitor organizations performance
• It provides strategic feed back
• It improves decisions and better solutions.
• It is used to align he business activities to vision and strategy.
• It is used to monitor organisations perfomance

Disadvantages:
• It is not fully efficient
• It takes time
• It is high implementation of cost
• It can show low profit

Capacity Maturity Model(CMM) & People Capacity Maturity

Model (PCMM):
People Capability Maturity Model (short names:People CMM, PCMM,P-CMM) is a
maturity framework that focuses on continuously improving the management and
development of the human assets of an organization. It describes an evolutionary
improvement path from ad hoc, inconsistently performed practices, to a mature,
disciplined, and continuously improving development of the knowledge, skills, and
motivation of the workforce that enhances strategic business performance. Related to
fields such as human resources, knowledge management, and organizational development,
the People CMM guides organizations in improving their processes for managing and
developing their workforces. The People CMM helps organizations characterize the
maturity of their workforce practices, establish a program of continuous workforce
development, set priorities for improvement actions, integrate workforce development
with process improvement, and establish a culture of excellence. The term was promoted
in 1995, published in book form in 2001, and a second edition was published in July 2009.

PCMM: The People CMM consists of five maturity levels that establish successive
foundations for continuously improving individual competencies, developing effective
teams, motivating improved performance, and shaping the workforce the organization
needs to accomplish its future business plans. Each maturity level is a well-defined
evolutionary plateau that institutionalizes new capabilities for developing the
organization's workforce. By following the maturity framework, an organization can avoid

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introducing workforce practices that its employees are unprepared to implement

effectively.

***

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